Public Sector Governance and Accountability Series: Budgeting and ...

Strengthening Public Expenditure Management in Africa 421
BOX 12.7 One Step Forward, One Step Back: Budget Reform
in Malawi
Malawi’s experience in reforming its public management system highlights
the necessity of placing individual technical reforms within the larger context
of budget management and taking into account local realities, ownership of
reforms and political will, capacity, and sensible sequencing.
Phase I of the MTEF reform program began in 1995. The main components
of this reform program were the reallocation of expenditures to priority
activities, the preparation of activity-based budgets, and the integration of the
development and recurrent budget. A bottom-up approach in expenditure programming
was developed.
These reforms had some benefits—for example, improved capacity at
line-ministry level to link policies and budgets. However, as an unintended
result of the bottom-up approach developed in expenditure programming,
detailed activity costing did not take into account the overall resource envelope,
and unpredictable funding undermined the credibility of the exercise—thus
undermining overall expenditure control. Sector development of detailed
activity-based budgets and efforts to prioritize activities happened in a vacuum
and largely amounted to empty annual compliance with procedural requirements—with
only a limited effect on spending outcomes—rather than robust
engagement with problems. The Public Sector Investment Programme (PSIP)
was discontinued in 1997, under the assumption that it would be replaced by
the MTEF. As a result, for several years the Ministry of Finance had little information
about ongoing investment projects, and few of them were included in
the development budget.
An MTEF II program was prepared in 2003 and 2004. The second phase
of the MTEF reforms is aimed at strengthening the basis for reviving the
MTEF. The objectives of the MTEF II program include improving macroeconomic
and revenue forecasting capacity; improving cash management;
strengthening financial control and accountability; streamlining the budget
preparation process to provide timely hard budget constraints; and improving
institutions for economic governance, including mechanisms for political
involvement, transparency, and accountability. A few improvements have
already been achieved. For example, cash planning has been streamlined to
provide line ministries with a modicum of predictability. The legal framework
has been streamlined. The PSIP was revived in 2004, to prioritize projects
according to the objectives of the poverty reduction strategy. However, the
initial objectives of the MTEF reform are far from being achieved. In the
meantime, important information has been lost, and substantial transaction
costs have been incurred.
Source: Adapted from material drafted by Daniel Tommasi, based on Durevall and Erlandsson
2005 and Simwakai 2004.